Share Investments

What is a Share?
A share is a basic unit of ownership in a company. When you buy a share you become a part owner of a company. The ownership of the company may be divided into millions of parts, and each part is called a share. People will buy a number of shares as ownership, which gives them part ownership as a shareholder.

All shareholders wholly own the company, but the directors of the company run it on behalf of the shareholders. When you buy shares in a company you are actually buying part ownership and the unit (called shares) represents this part ownership.

For example, if a new company opened and it was going to sell 1000 shares and you bought 500 shares, you would be 50% owner of that company.

Shares are a 'Paper Investment'
Shares are regarded as a paper investment. When you invest in shares through the stock market, you get a piece of paper in return for your money. The piece of papers says you own or have an interest in part of that company. This means that your investment is only as good as that company.

The price of the shares reflects what someone wanting to buy a share is prepared to pay for it. Shares usually provide the best returns of all the investment classes, but they have the highest risk and they are subject to volatility with prices rising and falling sharply. They are best suited to long-term investors, so that any falls and increases in the market can be sorted out over the long-term.

There are 2 aspects of returns coming from shares and these are:

  1. Dividend income.
  2. Capital growth on the sale of shares.

Why do Companies Issue Shares?
Companies in the USA issue shares to raise money to fund the business activities. The shareholders who buy the shares can be individuals, other companies, or institutions. Anyone who owns shares in a company is a part owner of that business and therefore will participate in the success or failure of the company.

Shares are referred to as equities because they represent ownership in a company, just as we refer to an owner’s money in a house as his/her equity.

The returns you receive from shares come through a combination of dividends paid and also any increase in the market value of the shares during the period you own them. Your principle risk is that they may decline in value because shares fluctuate in response to changes in the economy, as well as to the performance and activities of the particular companies.

Shares generally fluctuate more than bonds or cash, but over the years they offer investors the greatest potential for growth.

Only 10% of Americans Invest in Shares
They say that less than 10% of Americans invest in the share market. This lack of investment gives rise to the apparent low take-up of what is considered the best area for investment. Wise investors buy quality assets at low prices. People who don’t put the time into doing study or homework in shares find themselves selling when the market falls, losing money and then blaming the market.

This is not the fault of the shares, because over time the shares will rise again and if they are held for a long-term period they will generally round out, and give the investor an increase. Outside of an investor’s home the shares will probably be the best investment of all. It runs to a market cycle, which determined when prices go up and when prices go down.

There are, however, some basic rules to investing that should be adhered to.

These are:

  • Buy quality assets.
  • Seek professional advice if necessary.
  • Make sure you diversify so the investments are split between countries as well as industries and companies.
  • Always keep buying, irrespective of the market. (Carry out dollar averaging.)
  • Have a goal or plan and stay in form. Don’t get greedy, but follow through the right principles and if necessary be prepared to cut your losses to get out – if you are going in the wrong direction.